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Customizing Index Interest Rates & Tax Rates

  • Updated on 29 Jan 2019
  • 3 minutes to read

Index Interest Rates

It's a common practice in some organisations to fix their internal interest rates to a standard rate determined periodically by an external entity, such as Central Banks.

The interest rate source is defined when creating a Loan Product using declining balance methods as explained in Interest Calculation Methods in Loans.

All the accounts created under a loan product using Index Interest Rate will be reviewed at a frequency which is also determined when creating the product.

When the accounts are reviewed, if the Index Rate remains the same, there will be no changes in the repayment schedules. On the other hand, if the Index Rate changed after the latest review, the repayment schedules will be updated to reflect the new interest rate.


Adding an Index Interest Rate

To add an Index Interest Rate you have to add first a Rate Source. Available Rate Sources: Interest Rate, Value Added Tax, Withholding Tax.

  1. Go to Administration
  2. General
  3. Rates
  4. Add Index Interest Rate
  5. Enter the rate and the start date
  6. Save Changes

Index Rate Screen. All previous inxed interest rates are views on the main screen. By clinking the Add Interest Rate button a pop-up will be displayed. In the pop-ul the fields New Rate and Valid From are mandory while the Notes text area is not.

There are a few aspects to take into account when adding a new index Interest Rate:

  • The first Index rate can be added with a start date in the past
  • All other Index rates should have either the current or a future date

Editing and deleting an Index Interest Rate

Index Rates can only be edited or deleted if the start date is either the current or a future date, or if it is not being used in any account yet.

The editing/deleting of an Index Interest Rate can be done by pressing the Action button and Edit or Delete.

To edit an Index rate click on the correspondent icon > edit the Index rate > Save Changes.
To delete an Index rate click on the delete icon > Delete.


Tax Rates

Organisations might be required to collect taxes on the income generated from loans interest, fees or penalties, and/or to withhold taxes on interest paid to deposit accounts. These taxes are usually called Value Added Tax (VAT) in the case of Loan Products, and Withholding Taxes in the case of Deposit products.

Please Note
Taxes are set up at the Product Level, using a previously defined Tax Rate. For Tax details, please see the relevant sections in the Loan Product Setup and Deposit Product Setup articles.

Adding a Tax Rate

Just as it happens with the Index interest rates, also taxes source, rates and start date need to be added under Administration before being used.

The first step should be to add the tax source. To do so go to Administration > General Settings > Rates > click the plus icon > enter the source's name > choose the Rate Source Type > Save Changes.

Create new rate source pop-up. The Type drop-down contains the following values: Interest Rate, Value Added Tax and Withholding Tax

Once the tax source is defined, you can start defining your Taxes rates. Choose the appropriate Tax source > click "Add Vaule Added Tax" or "Add Withholding Tax"> enter the new rate > enter the date when it should be valid from > Save Changes.

Store Rate screen, where New rate and Valid from fields are mandatory.

Please Note
Taxes can't be enabled or disabled on a product if it already has active accounts.

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